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Old 9th June 2017, 17:41   #31
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by smartcat View Post
Motherson Sumi is the 'Eicher Motors' of auto ancillary space. Pretty much all the numbers are good. But let me highlight some issues with the company, and how it is not actually much of an issue
@Smartcat: Thanks for your comments! I agree with you about its valuations! Its not exactly "cheap". But, If you buy at the right time, and have the paitence to hold it, its a good stock to be in!
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Old 9th June 2017, 20:31   #32
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Default Re: Guide: Investing in shares of the automotive sector

Thanks for such a detailed, informative post!

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Originally Posted by smartcat View Post
- Making money in stocks involves just two factors -> application of logic/knowledge (20%) and psychology (80%).
Here's a nice quote from Peter Lynch on this point -

"Everyone has the brainpower to invest in stocks. Not everyone has the stomach"

And another one from Warren Buffett that on this investment style in general -

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

Last edited by ampere : 9th June 2017 at 21:40.
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Old 9th June 2017, 20:51   #33
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Default Re: Guide: Investing in shares of the automotive sector

Smartcat - Excellent write-up on how to go about analyzing stocks to buy. You have a great way of explaining things

Why don't you open up an investment advisory firm and make us your clients
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Old 9th June 2017, 22:09   #34
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Cool Re: Guide: Investing in shares of the automotive sector

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Originally Posted by smartcat View Post
The biggest problem with the stock market is that price of the investment changes every day. But the market price of a stock should not bother you much AFTER you made the investment. Let's take the real estate analogy again - Let's say you have bought an apartment for Rs. 40 Lakhs. Let's assume that you have put it on sale on eBay.
Hi @Smartcat sir,
This is quite a useful thread for someone who wants to make investments in the automotive sector. Though I'm too young(only 15)to do some investments but thanks for this helpful thread. The queries which I had in mind for over a longer period of time have now been clarified. If or whatsoever, if a need comes to make some investment in the shares of automotive sector, then I'll refer this thread first. Take a bow sir.

Now coming to the point, if I were to ever to make any investments in the share market of the Automotive Sector, then I would put all my money on the 'PPAP Automotive' because of the following reasons :
  • They are cheaper to buy.
  • Secondly, it doesn't matter if Brand 'A' is gaining the market share or Brand 'B' as these chaps supply parts to almost all the brands. So, its more of a safer game to play and this ensures a bit of peace of mind over the latter option as well.
  • They have got a stable customer base as the manufacturers wouldn't keep switching their suppliers frequently. In the latter, actually you usually won't get a stable customer base which might be an issue in some scenarios.

Since their list of Pro's easily outweigh their Con's, I would prefer to put my money on 'PPAP Automotive' over any other car manufacturer.

Thanks for this informative thread,
Varun

Last edited by ampere : 9th June 2017 at 23:18. Reason: Trimmed quoted post
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Old 9th June 2017, 22:24   #35
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Default Re: Guide: Investing in shares of the automotive sector

Smartcat - excellent writeup, very informative.
Wanted to know your take on Force motors, the share is pricing at a fair value currently and I have heard it has a potential to be an Eicher motor. The equity capital is also very small.
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Old 10th June 2017, 00:25   #36
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Default Re: Guide: Investing in shares of the automotive sector

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Originally Posted by Nonstop-driver View Post
While on the subject, @smartcat, others, what are the available Mutual Funds that invest 100% in auto/ ancillary sector in India?
Not that I know of. There is something else you could do - invest in BSE Auto (like BSE Sensex) index, which has historically given 10x returns in 12 years.

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Well, you can't exactly 'buy' the BSE Auto index through your broker. Instead, you could buy stocks that constitute the BSE Auto index. That is, invest equal amounts (say Rs. 100,000) in each of these stocks.

Ashok Leyland
Bajaj Auto
Bharat Forge
Bosch
Cummins
Eicher Motors
Exide Ind
Hero Motorcorp
M&M
Maruti Suzuki
Motherson Sumi
MRF
Tata Motors

Your portfolio will more or less (but not exactly) replicate the performance of BSE Auto Index.

Quote:
Originally Posted by Varun_HexaGuy View Post
Though I'm too young(only 15)to do some investments but thanks for this helpful thread. Now coming to the point, if I were to ever to make any investments in the share market of the Automotive Sector, then I would put all my money on the 'PPAP Automotive' because of the following reasons : Since their list of Pro's easily outweigh their Con's, I would prefer to put my money on 'PPAP Automotive' over any other car manufacturer.
Putting all your money on one stock is a bad idea. Anyway, although you still have 7 or 8 years before you start earning, you can still dabble in stocks - with imaginary money.

1) Go to www.moneycontrol.com and sign up for free portfolio account.
2) Identify one stock to "invest" (imaginary Rs. 10,000 money) in every month. Let's say you like PPAP Automotive (price: Rs. 400 per share). Add this stock to your portfolio with quantity of shares purchased as 25 (400 x 25 = 10,000)
3) Next month, add one more stock to the portfolio based on your research. Check out the website, read investor presentations, annual reports and brokerage reports before you "invest" your imaginary money. Do this for the next 12 months.
4) Keep tracking the quarterly results of the companies you "own". And watch your imaginary money grow.

You will learn a lot about investing this way.

Quote:
Originally Posted by anubshar View Post
Wanted to know your take on Force motors, the share is pricing at a fair value currently and I have heard it has a potential to be an Eicher motor.
FORCE MOTORS PROS:

1) 33% of Force Motors' revenues comes from BMW & Mercedes. It is likely to climb up to 50% in the next 2 years, and probably beyond. So Force Motors is a good proxy for growth (estimated to be 20% per annum) in luxury car segment

2) Started off by assembling Mercedes diesel engines, but now their portfolio includes - assembly of diesel engines of different capacities, petrol engines, gearbox and also assembly of front axle & rear axle. Since the association with Mercedes is long, it is quite likely that Mercedes will send more business to Force Motors in the future.

3) Tempo Traveller has 70% market share in inter-city family tourer segment. Market share is likely to sustain because of it is based on monocoque chassis (lighter and hence more fuel efficient). Also has Tractor & Tempo Trax business. They occasionally sell a couple of Force Gurkha 4x4 to Team-BHP offroad enthusiasts every year.

4) No debt, rising return on equity.

5) Profits likely to grow by 20% to 25% per annum over the next few years.

FORCE MOTORS CONS:

1) Way too expensive for such a small company. Valued at 30 times profits.
2) Low dividend payout ratio of 5% to 7%. Offers a dividend yield of only 0.24%
3) Past financial history is quite bad.


If anybody has difficulty imagining what "30 times earnings" or "30 times profit" means, here is an hypothetical example -
  • Let's say there is a company that earns around Rs. 10 Lakhs per year profit currently.
  • You have bought this company at 30 times earnings meaning you paid Rs. 3 Cr.
  • Let's say the company is unable to grow but continues to generate a profit of Rs. 10 Lakhs per year.
In the above scenario, it will take 30 years (10L x 30) to recover back the money you invested in the company.

So when you buy small companies like Force Motors at 30 times earnings, you need to be reasonably sure that they won't mess up. Management needs to deliver long term growth in profits or the stock will come crashing down to earth.

Last edited by smartcat : 10th June 2017 at 00:36.
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Old 10th June 2017, 08:52   #37
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Default Re: Guide: Investing in shares of the automotive sector

Found this report on google for the above query on international stocks. There are some Mutual Funds that invest in international stocks though from what I see, the performance isn't that great.

HDFC Sec report.pdf

Interesting to note the stock holdings and patterns though. This is an aged report.
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Old 10th June 2017, 09:03   #38
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Default Re: Guide: Investing in shares of the automotive sector

Thanks for the Smart Investment tips, Smartcat. It appears, I may have to approach you for some personal investment tips.

I have squandered a lot of money in the stocks, due to some unanalyzed and rush of blood investments. These are supposedly the no. 1 in "Not to Do list" while investing. I learned it the hard way.

I am assuming all the glossary, tips & case studies are not restricted just to Auto/Auto-ancillary stocks.
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Old 10th June 2017, 11:35   #39
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Default Re: Guide: Investing in shares of the automotive sector

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I am assuming all the glossary, tips & case studies are not restricted just to Auto/Auto-ancillary stocks.
Correct. But remember that automobile sector companies and managements are relatively clean. There are lots of chor companies and chor managements in other sectors. But there is an easy way to filter out 99.9% of the scamsters - like how Dettol gets rid of 99.9% of the germs.

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Step 1: Go to screener.in and sign up for a free account.

Step 2: Scroll down to access the 'QUERY BUILDER' and type in the following

Guide: Investing in shares of the automotive sector-querybuilder.jpg

Step 3: Now hit RUN THIS QUERY button. This filters out crappy companies. You can use simple language with <, > and AND symbols. Basically, what I'm doing is asking the screener to give me a list of companies -

- With market capitalization greater than Rs. 100 Cr
- Price to Earnings less than 30
- Return on equity greater than 15%
- Dividend payout ratio greater than 15%

Do not mention Debt to equity ratio because banks and finance companies have high debt, and its okay. "Debt" (money) is raw material for these companies.

Step 4:

Guide: Investing in shares of the automotive sector-queryresults.jpg

The screener scans the universe of listed companies and gives you a list of high quality companies. There are close to 4000 stocks on BSE/NSE but the screener is listing only 159 companies. You will never invest in suspicious, scammy or poor quality stocks when you insist that the company pays out 15% of their profits as dividends. Insisting on high return on equity ensures that you are buying growing companies. Insisting on PE less than 30 (or 20) ensures that you buy fair value stocks.

Note that you need to do further research before investing in the list of stocks given to you by screener.

Last edited by smartcat : 10th June 2017 at 11:36.
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Old 10th June 2017, 15:26   #40
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Default Re: Guide: Investing in shares of the automotive sector

Thanks for wonderful write up - Can you share your thoughts for SME's investments ? Can these be bought from BSE ?
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Old 10th June 2017, 16:25   #41
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Default Re: Guide: Investing in shares of the automotive sector

Just a few hours ago I had this thought of investing in Auto stocks and as soon as I log on to the forum, this is what I see. Some Intuition.

I would want to see the EV vehicle scenario in the country. Currently its Mahindra that's making a big fuss about the electric vehicle sector presence. Tata has also something in the works but I guess Tata Motors has the backup of Tata CV and JLR, so in its case having a knowledge of their future plans is going to be more useful. We haven't heard of any existing companies developing EV 2 wheelers maybe the 4 wheelers will lead the way.

Great thread Smartcat. Will definitely be following as its high time to diversify my investments.
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Old 11th June 2017, 16:24   #42
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Default Re: Guide: Investing in shares of the automotive sector

Awesome thread. I was in search for this sort of as thread for a while. I did a few wrong auto investments sometime back, and now this gives a clear insight. Thank you very much SmartCat.
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Old 12th June 2017, 12:21   #43
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Default Re: Guide: Investing in shares of the automotive sector

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For those who like to hunt for treasure, here is a LIST OF LISTED AUTOMOBILE COMPANIES & AUTO COMPONENT MANUFACTURERS:
What a thread! Was like reading Peter Lynch all over again. I've recently begun trendspotting Auto components, as well with similar principles.

One of the areas I've become recently keen on is waterless techs: waterless wash, windscreen cleaning, waterless processes in plants, water reuse etc. Principle obviously being search for techs with potential future scale and ease and multiplicity of application. Would keenly follow this thread to exchange notes on other auto related investments!
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Old 12th June 2017, 20:14   #44
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Default Re: Guide: Investing in shares of the automotive sector

Nice thread. I have been an auto research analyst at one point in time in a global MNC. This along with my current profession as a seasonal trader (more investor) and mutual fund advisor has helped me make good money in autos in the past few years. Apart from insight research from a top brokerage house and contacts, one website I regularly follow is Value research. Their quant analysis is really trustworthy. Will definitely help normal investors here. In fact, if you can shell some money, their wealth insight magazine is good.

Even to this date 54% of my portfolio is autos . Some of my auto stocks have been multi-baggers in the past few years. Cant disclose stocks here as the regulations may not allow me to put it in public (even if its not an advise).

Last edited by gaurav_chopra04 : 12th June 2017 at 20:20.
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Old 12th June 2017, 20:58   #45
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Thank you @smartcat for starting this awesome thread. I have been only investing in Stock markets via Mutual Funds until now, as I didn't have the courage (read knowledge ) to directly invest on stocks. You have so nicely explained how to risk analyze a stock, that could apply to all kind of stocks in general, I now have a base from where I can start investing on my own.

Kudos!!
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